U.S. Cellular reports second quarter 2016 results

Record low postpaid churn of 1.20%; guidance reaffirmedAs previously announced, U.S. Cellular will hold a teleconference Aug. 5, 2016, at 9:30 a.m. CDT. Listen to the live call via the Events & Presentations page of investors.uscellular.com.

CHICAGO, Aug. 5, 2016 /PRNewswire/ -- United States Cellular Corporation (NYSE:USM) reported total operating revenues of $980 million for the second quarter of 2016, versus $976 million for the same period one year ago. Net income attributable to U.S. Cellular shareholders and related diluted earnings per share were $27 million and $0.32, respectively, for the second quarter of 2016, compared to $19 million and $0.23, respectively, in the same period one year ago.

"We had another encouraging quarter of continued progress toward achieving our strategic objectives in 2016," said Kenneth R. Meyers, U.S. Cellular president and CEO. "We continued to grow our customer base by providing products and services priced to offer the best value in the industry.

"Our customer loyalty remained strong, reflected by the lowest levels of churn we have ever experienced and increasingly higher customer engagement scores. This demonstrates our unwavering focus to providing outstanding service at every point of the customer interaction, especially in our network quality. Our customers appreciate that U.S. Cellular's network coverage reaches to "the middle of anywhere".

"We continue to invest in our high-quality network. We are pleased to report that our Voice over LTE (VoLTE) buildout is on schedule as our network team is working toward our first commercial deployment of VoLTE early next year, bringing benefits such as simultaneous voice and data sessions as well as additional opportunities for data roaming."

2016 Estimated ResultsU.S. Cellular's current estimates of full-year 2016 results, which are unchanged from the previous estimates, are shown below. Such estimates represent management's view as of August 5, 2016. Such forward-looking statements should not be assumed to be current as of any future date. U.S. Cellular undertakes no duty to update such information, whether as a result of new information, future events or otherwise. There can be no assurance that final results will not differ materially from such estimated results.

2016 Estimated Results

Current

Previous

(Dollars in millions)

Total operating revenues

$3,900-$4,100

Unchanged

Operating cash flow (1)

$525-$650

Unchanged

Adjusted EBITDA (1)

$725-$850

Unchanged

Capital expenditures

Approx. $500

Unchanged

The following table provides a reconciliation to Operating Cash Flow and Adjusted EBITDA for 2016 estimated results, and actual results for the three months ended June 30, 2016 and year ended December 31, 2015. In providing 2016 estimated results, U.S. Cellular has not completed the below reconciliation to net income because it does not provide guidance for income taxes. Although potentially significant, U.S. Cellular believes that the impact of income taxes cannot be reasonably predicted; therefore, U.S. Cellular is unable to provide such guidance.

Actual Results

2016 Estimated

Results

Six Months Ended

June 30, 2016

Year Ended

December 31, 2015*

(Dollars in millions)

Net income (GAAP)

N/A

$

37

$

247

Add back:

Income tax expense (benefit)

N/A

23

156

Income (loss) before income taxes (GAAP)

$

(5)-120

$

60

$

404

Add back:

Interest expense

110

56

86

Depreciation, amortization and accretion expense

610

307

606

EBITDA (Non-GAAP)

$

715-840

$

423

$

1,096

Add back (deduct):

(Gain) loss on sale of business and other exit costs, net

–

–

(114)

(Gain) loss on license sales and exchanges, net

(10)

(9)

(147)

(Gain) loss on assets disposals, net

20

10

16

Adjusted EBITDA (Non-GAAP) (1)

$

725-850

$

424

$

852

Deduct:

Equity in earnings of unconsolidated entities

140

72

140

Interest and dividend income

60

27

37

Operating cash flow (Non-GAAP) (1)(2)

$

525-650

$

325

$

675

* Includes $58 million of revenue related to termination of the rewards points program.

Note: Totals may not foot due to rounding differences.

(1)

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and accretion) is defined as net income adjusted for the items set forth in the reconciliation above. Operating cash flow is defined as net income adjusted for the items set forth in the reconciliation above. Adjusted EBITDA and Operating cash flow are not measures of financial performance under Generally Accepted Accounting Principles in the United States ("GAAP") and should not be considered as alternatives to Net incomes, as indicators of cash flows or as measure of liquidity. TDS does not intend to imply that any such items set forth in the reconciliation above are non-recurring, infrequent or unusual; such items may occur in the future. Management uses Adjusted EBITDA and Operating cash flow as measurements of profitability, and therefore reconciliations to applicable GAAP income measures are deemed most appropriate. Management believes Adjusted EBITDA and Operating cash flow are useful measures of TDS' operating results before significant recurring non-cash charges, gains and losses, and other items as presented below as they provide additional relevant and useful information to investors and other users of TDS' financial data in evaluating the effectiveness of its operations and underlying business trends in a manner that is consistent with management's evaluation of business performance. Adjusted EBITDA shows adjusted earnings before interest, taxes, depreciation, amortization and accretion, while Operating cash flow reduces this measure further to exclude Equity in earnings of unconsolidated entities and Interest and dividend income in order to more effectively show the performance of operating activities excluding investment activities. The table above reconciles Adjusted EBITDA and Operating cash flow to the corresponding GAAP measure, Net income or Income (loss) before incomes taxes.

(2)

A reconciliation of Operating cash flow (Non-GAAP) to Operating income (GAAP) for June 30, 2016 actual results can be found on the company's website at investors.uscellular.com.

Access the call by phone at 877/407-8029 (US/Canada), no pass code required.

Before the call, certain financial and statistical information to be discussed during the call will be posted to investors.uscellular.com. The call will be archived on the Events & Presentations page of investors.uscellular.com.

About U.S. CellularUnited States Cellular Corporation provides a comprehensive range of wireless products and services, excellent customer support, and a high-quality network to customers with 5 million connections in 23 states. The Chicago-based company had 6,400 full- and part-time associates as of June 30, 2016. At the end of the second quarter of 2016, Telephone and Data Systems, Inc. owned 83 percent of U.S. Cellular. For more information about U.S. Cellular, visit uscellular.com.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: All information set forth in this news release, except historical and factual information, represents forward-looking statements. This includes all statements about the company's plans, beliefs, estimates, and expectations. These statements are based on current estimates, projections, and assumptions, which involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Important factors that may affect these forward-looking statements include, but are not limited to: intense competition; the ability to execute U.S. Cellular's business strategy; uncertainties in U.S. Cellular's future cash flows and liquidity and access to the capital markets; the ability to make payments on U.S. Cellular indebtedness or comply with the terms of debt covenants; impacts of any pending acquisitions/divestitures/exchanges of properties and/or licenses, including, but not limited to, the ability to obtain regulatory approvals, successfully complete the transactions and the financial impacts of such transactions; the ability of the company to successfully manage and grow its markets; the overall economy; the ability to obtain or maintain roaming arrangements with other carriers on acceptable terms; the state and federal telecommunications regulatory environment; the value of assets and investments; adverse changes in the ratings afforded U.S. Cellular debt securities by accredited ratings organizations; industry consolidation; advances in telecommunications technology; pending and future litigation; changes in income tax rates, laws, regulations or rulings; changes in customer growth rates, average monthly revenue per user, churn rates, roaming revenue and terms, the availability of wireless devices, or the mix of products and services offered by U.S. Cellular. Investors are encouraged to consider these and other risks and uncertainties that are discussed in the Form 8-K Current Report used by U.S. Cellular to furnish this press release to the Securities and Exchange Commission, which are incorporated by reference herein.

Average Revenue Per User ("ARPU") - metric is calculated by dividing a revenue base by an average number of connections and by the number of months in the period. These revenue bases and connection populations are shown below:

?

Postpaid ARPU consists of total postpaid service revenues and postpaid connections.

?

Prepaid ARPU consists of total prepaid service revenues and prepaid connections.

(2)

Average Billings Per User ("ABPU") - non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid connections and by the number of months in the period.

(3)

Average Revenue Per Account ("ARPA") - metric is calculated by dividing total postpaid service revenues by the average number of postpaid accounts and by the number of months in the period.

(4)

Average Billings Per Account ("ABPA") - non-GAAP metric is calculated by dividing total postpaid service revenues plus equipment installment plan billings by the average number of postpaid accounts and by the number of months in the period.

(5)

Churn metrics represents the percentage of the connections that disconnect service each month. These rates represent the average monthly churn rate for each respective period.

Add (deduct) adjustments to reconcile net income to cash flows from operating activities

Depreciation, amortization and accretion

307

298

Bad debts expense

44

52

Stock-based compensation expense

12

12

Deferred income taxes, net

7

(17)

Equity in earnings of unconsolidated entities

(72)

(70)

Distributions from unconsolidated entities

30

27

(Gain) loss on asset disposals, net

10

10

(Gain) loss on sale of business and other exit costs, net

–

(113)

(Gain) loss on license sales and exchanges, net

(9)

(123)

Noncash interest expense

1

1

Other operating activities

(2)

–

Changes in assets and liabilities from operations

Accounts receivable

9

5

Equipment installment plans receivable

(94)

(65)

Inventory

(27)

132

Accounts payable

35

25

Customer deposits and deferred revenues

(18)

(7)

Accrued taxes

41

139

Accrued interest

(1)

–

Other assets and liabilities

(49)

(68)

Net cash provided by operating activities

261

423

Cash flows from investing activities

Cash paid for additions to property, plant and equipment

(177)

(259)

Cash paid for acquisitions and licenses

(46)

(280)

Cash received from divestitures and exchanges

17

282

Federal Communications Commission deposit

(143)

–

Other investing activities

(1)

1

Net cash used in investing activities

(350)

(256)

Cash flows from financing activities

Repayment of long-term debt

(6)

–

Common shares reissued for benefit plans, net of tax payments

3

(2)

Common shares repurchased

(2)

(2)

Payment of debt issuance costs

(2)

(3)

Acquisition of assets in common control transaction

–

(2)

Distributions to noncontrolling interests

(1)

(6)

Other financing activities

3

(2)

Net cash used in financing activities

(5)

(17)

Net increase (decrease) in cash and cash equivalents

(94)

150

Cash and cash equivalents

Beginning of period

715

212

End of period

$

621

$

362

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

ASSETS

June 30,

December 31,

2016

2015

(Dollars in millions)

Current assets

Cash and cash equivalents

$

621

$

715

Accounts receivable from customers and others, net

680

672

Inventory, net

176

149

Prepaid expenses

86

81

Other current assets

22

55

Total current assets

1,585

1,672

Assets held for sale

23

–

Licenses

1,854

1,834

Goodwill

370

370

Investments in unconsolidated entities

407

363

Property, plant and equipment

In service and under construction

7,605

7,669

Less: Accumulated depreciation

5,095

5,020

Property, plant and equipment, net

2,510

2,649

Other assets and deferred charges

342

172

Total assets

$

7,091

$

7,060

United States Cellular Corporation

Consolidated Balance Sheet Highlights

(Unaudited)

LIABILITIES AND EQUITY

June 30,

December 31,

2016

2015

(Dollars in millions)

Current liabilities

Current portion of long-term debt

$

11

$

11

Accounts payable

Affiliated

16

10

Trade

294

275

Customer deposits and deferred revenues

231

251

Accrued taxes

35

28

Accrued compensation

52

68

Other current liabilities

80

105

Total current liabilities

719

748

Deferred liabilities and credits

Deferred income tax liability, net

827

821

Other deferred liabilities and credits

300

290

Long-term debt

1,623

1,629

Noncontrolling interests with redemption features

1

1

Equity

U.S. Cellular shareholders' equity

Series A Common and Common Shares, par value $1 per share

88

88

Additional paid-in capital

1,510

1,497

Treasury shares

(137)

(157)

Retained earnings

2,150

2,133

Total U.S. Cellular shareholders' equity

3,611

3,561

Noncontrolling interests

10

10

Total equity

3,621

3,571

Total liabilities and equity

$

7,091

$

7,060

United States Cellular Corporation

Financial Measures and Reconciliations

(Unaudited)

Free Cash Flow and Adjusted Free Cash Flow

Three Months Ended June 30,

Six Months Ended June 30,

2016

2015

2016

2015

(Dollars in millions)

Cash flows from operating activities (GAAP)

$

98

$

168

$

261

$

423

Less: Cash used for additions to property, plant and equipment

75

143

177

259

Free cash flow

23

25

84

164

Add: Sprint Cost Reimbursement

2

7

4

23

Adjusted free cash flow (Non-GAAP) (1)

$

25

$

32

$

88

$

187

(1)

Management uses Free cash flow as a liquidity measure and it is defined as Cash flows from operating activities less Cash paid for additions to property, plant and equipment. Adjusted free cash flow is defined as Cash flows from operating activities (which includes cash outflows related to the Sprint decommissioning), as adjusted for cash proceeds from the Sprint Cost Reimbursement (which are included in Cash flows from investing activities in the Consolidated Statement of Cash Flows), less Cash paid for additions to property, plant and equipment. Sprint decommissioning and Sprint Cost Reimbursement are further defined and discussed in our Annual Report on Form 10-K for the year ended December 31, 2015. Free cash flow and Adjusted free cash flow are non-GAAP financial measures which U.S. Cellular believes may be useful to investors and other users of its financial information in evaluating the amount of cash generated by business operations (including cash proceeds from the Sprint Cost Reimbursement), after Cash paid for additions to property, plant and equipment.

Postpaid ABPU and Postpaid ABPA

U.S. Cellular presents Postpaid ABPU and Postpaid ABPA to reflect the revenue shift from Service revenues to Equipment and product sales resulting from the increased adoption of equipment installment plans. Postpaid ABPU and Postpaid ABPA, as previously defined, are non-GAAP financial measures which U.S. Cellular believes are useful to investors and other users of its financial information in showing trends in both service and equipment revenues received from customers.

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